As Donald Trump gears up for another term in the White House, his proposed tariffs on imports from China, Mexico, and Canada are set to reshape global trade dynamics.

While Europe may face its own set of US tariffs, the region’s greater concern lies in the ripple effects of trade barriers aimed at China, a major economic partner.

Europe, heavily reliant on seamless global trade, risks substantial economic disruptions.

The tariffs threaten to undermine a continent already grappling with high energy costs, inflationary pressures, and sluggish growth exacerbated by Russia’s ongoing conflict in Ukraine.

However, certain stocks and sectors may still thrive despite broader economic challenges in Europe, especially as the region’s undervalued shares show potential to narrow the gap with their US counterparts, Barron’s reports.

Europe’s vulnerability to trade disruptions

Europe’s economic model depends significantly on exports, with roughly 20% of the European Union and the United Kingdom’s exports heading to the US.

Luxury goods, such as LVMH’s Louis Vuitton handbags, Ferrari cars, and Diageo’s Talisker Scotch whiskey, could face higher costs if tariffs are imposed.

However, analysts note that the impact of tariffs on European goods may be limited.

Much of Europe’s exports are services, which are exempt from tariffs, while several high-profile goods like Volkswagen cars are manufactured in the US and would avoid levies.

Yet, the broader threat to Europe stems from the potential disruption to global supply chains and trade frictions.

As UBS European equity strategist Matthew Gilman highlights, “The knock-on effects of tariffs on global growth and end demand are a significant concern.”

Chinese retaliation could intensify challenges

A major worry for Europe is retaliation by other nations, particularly China, which may divert its exports to other regions, including Europe.

The influx of Chinese goods, as seen with electric vehicles, could increase competition and suppress prices, adding further pressure on European manufacturers.

Martin Todd, a fund manager at Federated Hermes, emphasizes Europe’s sensitivity to developments in China.

“Europe is heavily exposed to Chinese manufacturing and economic trends. Any disruption from tariffs could exacerbate existing challenges,” he noted.

Trump tariffs may bring opportunities for undervalued European markets

UBS’s downgrade of its 2024 forecast for the Euro STOXX 50 index underscores the uncertainty surrounding European equities.

The index has gained only 7% this year, compared to the Dow Jones Industrial Average’s 19% rise, reflecting the continent’s economic headwinds.

However, while Trump’s tariff threats compound existing vulnerabilities, they may also catalyze European markets to adjust and attract contrarian investors.

The undervaluation of European equities could lead to selective opportunities, especially in sectors that are less dependent on global trade.

European shares trade at about 14 times forward earnings, a significant discount to US stocks, which average over 22 times earnings.

Analysts see opportunities in undervalued European stocks compared to their US counterparts.

Stocks that show promise despite tariff challenges

Despite the looming challenges, some European sectors show promise.

Consumer staples: Consumer staples may remain resilient despite tariffs on goods like Scotch, as essentials from companies like Unilever and Nestle will still see demand.

The iShares MSCI Europe Consumer Staples ETF (ESIS) is down 5% this year, underperforming the STOXX Europe 600’s 5.8% gain.

Utilities: The energy transition in Europe remains a strong theme.

Companies like France’s EDF and Germany’s E.ON could benefit from long-term investment in renewable energy infrastructure.

However, falling natural gas prices, potentially from an end to the Russia-Ukraine war, may pose risks to these stocks.

Technology: While European tech hasn’t matched US growth, firms like SAP and Infineon offer solid potential.

Their lower profile compared to Silicon Valley giants makes them appealing for contrarian investors.

Defense: Trump’s rhetoric about reducing US military support for allies could prompt increased defense spending in Europe.

Companies like France’s Thales, Germany’s ThyssenKrupp, and the UK’s BAE Systems stand to gain if nations ramp up military budgets.

These firms have underperformed US defense stocks, offering an opportunity for growth in a more self-reliant Europe.

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The Mexican peso strengthened against the US dollar on Tuesday, reaching 20.4 per dollar.

This marks a significant rebound from its recent low of 20.64 on November 26th.

The improvement reflects investor optimism fueled by positive labor market data and a thaw in trade tensions with the United States.

Economists are reassessing their forecasts as Mexico’s economy shows indications of resiliency.

Historic low unemployment fuels peso rally

A key driver of the peso’s resurgence is Mexico’s October unemployment rate, which plummeted to a record low of 2.5%.

This rate is not just the lowest since March, but it also outperformed estimates that unemployment would settle at 2.9%.

Such a large fall boosts confidence in consumer spending and broader economic activity, giving the Bank of Mexico (Banxico) more leeway in its monetary policy.

With the labour market tightening, some argue that the central bank should pursue a more aggressive easing rate while economic indicators remain stable.

The decrease in unemployment should, therefore, encourage increased flexibility in Banxico’s rate-cutting cycle, thereby driving capital inflows and providing the peso with an additional buffer against volatility.

Easing trade tensions with the US

Improved US-Mexico trade relations have also contributed to the peso’s strength.

Positive diplomatic meetings between US President-elect Donald Trump and Mexican President Claudia Sheinbaum have eased concerns about escalating trade conflicts.

Initially, Trump’s proposal of a 25% tariff on immigration and drug trafficking put pressure on the peso, raising fears of a new trade war.

However, following their recent meetings, markets reacted positively, indicating trust in Sheinbaum’s dedication to addressing these thorny problems, with Trump himself describing the engagement as “wonderful.”

This diplomatic rapprochement has significantly improved investor confidence.

The currency rate’s improvement today reflects a positive market sentiment spurred by hopes for further collaboration between the two neighbouring countries.

Challenges remain: weaker peso year-to-date

Despite the peso’s positive bounce, it is important to note that the currency is still almost 20% weaker year to date.

Concerns about increased government expenditure, growing debt levels, and Banxico’s recent easing actions pose substantial risks to the currency’s long-term stability.

Sheinbaum’s administration has attracted criticism for its budgetary policies, which some analysts think could lead to increasing inflationary pressures and complicate the central bank’s monetary environment.

With government debt on the rise, investors remain concerned about how these financial commitments may impact future economic growth. If more spending persists without equal economic growth, the peso may encounter new risks.

A delicate balance

The Mexican peso’s recent rally offers a positive signal amidst a complex economic landscape.

A stronger labour market and lower trade tensions have all contributed to this beneficial development.

However, the peso’s long-term stability hinges on addressing challenges like government spending and debt management.

Investors will continue to monitor both domestic and international developments as they assess the currency’s resilience.

The peso’s future trajectory will depend on successfully navigating these opportunities and challenges.

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Brazil’s Central Bank, officially known as Banco Central do Brasil (BCB), took an important step by launching a public consultation that could significantly alter the landscape of bitcoin transactions in the country.

This proposal is especially notable because it intends to prevent the transfer of stablecoins—cryptocurrencies designed to maintain a stable value tied to a fiat currency, such as Tether’s USDT—to self-custody wallets, including popular platforms like MetaMask.

The central bank’s draft regulation clearly states, “The virtual asset service provider is prohibited from transferring foreign currency-denominated virtual assets to a self-custody wallet.”

This specific policy, part of a larger draft regulatory framework, is not an arbitrary proposal; it is now available for public consultation until February 28, 2025.

With this project, the Brazilian government is taking a proactive approach to improving market monitoring, enforcing compliance, and regulating Brazilian capital outflows in a changing financial landscape.

The rationale behind the regulation

The reason behind these proposed laws stems from the Brazilian government’s growing desire to strengthen its control over the foreign exchange market and efficiently oversee the growing prevalence and use of stablecoins within Brazil’s borders.

According to the consultation document and related statements from officials, the move would entail modifying earlier 2022 resolutions addressing providers of virtual asset services (PSAV) functioning in the foreign currency market.

Beyond simply restricting stablecoin transfers, the BCB has ambitious plans to significantly broaden the definition of the foreign exchange market to include a wide range of activities such as payments, sales, custody, and a comprehensive range of cryptocurrency transactions denominated in foreign currencies.

If this regulation is enacted, PSAVs will be required to provide the BCB with detailed and specific information about customer verification processes, transaction values, and a variety of other operational data deemed relevant to maintaining market integrity.

The rising popularity of Stablecoins in Brazil

The growing popularity of stablecoins in Brazil highlights the importance of this regulation proposal.

Stablecoins, which have the potential to maintain a stable value that is tethered to a fiat currency (such as the US dollar), have grown in popularity in comparison to their more volatile cryptocurrency competitors.

The recent entry of USD Coin (USDC) into the Brazilian and Mexican markets via local bank transfers, as revealed by Circle, is a striking example of this emerging trend.

Circle has clearly stated that their stablecoin can now function flawlessly within the real-time payment systems developed in both countries, allowing for faster, more efficient, and more secure transactions for consumers seeking dependability in their digital transactions.

The challenge of self-custody wallets

In today’s cryptocurrency world, all transactions involving digital assets are subject to severe identity verification methods under the Know Your Customer (KYC) laws imposed by centralized exchanges to combat illicit financial activity.

Self-custody wallets, on the other hand, offer an intriguing and contrasting scenario.

These wallets provide a high level of privacy and user control, allowing individuals to manage their digital assets autonomously and without having to divulge personal information for payment transfers.

This distinguishing feature of self-custody wallets is important in light of the BCB’s ongoing public consultation.

While many see these wallets as an expression of financial freedom because they allow users to have complete control over their digital assets without the need for intermediaries, others argue that they represent a significant regulatory gap that could become a conduit for illicit financial activities, thwarting government oversight efforts.

Reflection on global regulatory trends

The BCB’s proposal is not isolated; rather, it represents a broader worldwide trend toward tighter cryptocurrency regulation, with a particular emphasis on the implications of these digital assets for domestic economies and foreign commerce.

As one of Latin America’s most dynamic and rapidly evolving markets, Brazil is now working to align its cryptocurrency policies with evolving global standards, indicating a growing commitment by financial authorities to ensure market stability while adapting to the ongoing wave of digital transformation affecting financial services.

As the consultation period unfolds, stakeholders—including individual crypto users, service providers, investors, and regulatory bodies—continue to pay close attention to the possible consequences of these proposed changes for the future of cryptocurrency transactions in Brazil.

The eventual outcome could set a key precedent for how nations in the region address the multifaceted challenges and tremendous opportunities presented by the burgeoning cryptocurrency landscape, especially as Brazil positions itself at the forefront of this critical and ongoing conversation about cryptocurrency and regulation.

Brazil’s cryptocurrency transactions at a crucial crossroads

As the Brazilian Central Bank prepares to reinterpret the legislative framework governing stablecoins and the use of self-custody wallets, the future trajectory of cryptocurrency transactions in Brazil reaches a critical crossroads.

As the public consultations progress, the delicate interplay between financial innovation and regulatory control will be widely monitored, not only in Brazil but also throughout the world, as other countries examine and potentially respond to Brazil’s regulatory strategy.

The decisions made today may influence the contours of the cryptocurrency market for years to come, influencing how digital currencies are managed, understood, and used in the broader economic landscape, both in Brazil and elsewhere.

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US equity majors fell slightly on Tuesday after the S&P 500 and the Nasdaq hit record highs in the previous session. 

Investors will be focusing on key US labour data, scheduled to be released later this week, and also monitoring comments from the Federal Reserve officials. 

October’s job opening and labour turnover survey report is scheduled to be released later on Tuesday.

The much anticipated US non-farm payrolls data will be released on Friday, which is a crucial metric in gauging the Fed’s interest rate trajectory. 

At the time of writing, the Dow Jones Industrial Average was down 0.3%, while the S&P 500 index fell a little over 0.1% from the previous close.

The Nasdaq Composite was little changed from the previous session. 

Both the S&P 500 and Nasdaq hit record highs on Monday, adding to their strong postelection gains. 

Since November 5, the S&P 500 has climbed 4.6%, and the Nasdaq has rallied 5.2%. The Dow is up 6% since then, and is trading near the key 45,000 level. 

David Morrison, senior market analyst at Trade Nation, said:

Overall, the recent price action has slowed to a steady grind higher. This follows the explosive rally across all the majors in November, triggered by Trump’s election victory, and led by the domestically-focused, mid-cap Russell 2000.

This week’s key economic data will be released ahead of the much anticipated US Fed policy meeting on December 17 and 18. 

US Steel sinks

Shares of US Steel sank more than 7% on Tuesday after the US President-elect Donald Trump opposed Nippon Steel’s planned purchase of the company. 

“I am totally against the once great and powerful U.S. Steel being bought by a foreign company, in this case Nippon Steel of Japan,” Trump wrote on his social-media platform Truth Social. 

“I will block this deal from happening. Buyer Beware!!!” 

Nippon Steel, however, hopes to close the deal before Trump assumes office as President.

The company also faces opposition from the incumbent President Joe Biden and a strong US labour union.

Meanwhile, Live Nation fell 2% after the concert promoter launched an offering of $1 billion in convertible senior notes.

Credo Technology Group jumps

Shares of the tech company jumped 32% after it posted positive earnings results. 

The earnings results topped estimates of analysts for the second fiscal quarter. 

Adjusted earnings came in at 7 cents per share on $72 million in revenue. Analysts at LSEG had estimated earnings of 5 cents per share on revenue of $67 million. 

Super Micro Computers extends gains

Share of the artificial intelligence server maker soared 8% on Tuesday. 

The stock added to its astronomical rise on Monday, when shares had surged by 29%. 

Sharess rose on Monday after a special committee said it found no evidence of misconduct in its business, 

It also said there was no evidence for “any substantial concerns about the integrity of Supermicro’s senior management or Audit Committee, or their commitment to ensuring that the Company’s financial statements are materially accurate.”

Bernstein downgrades FedEx

Bernstein said FedEx’s looming decision on potentially spinning off its less-than-truckload business could weigh on the stock, according to a CNBC report. 

The firm lowered the rating for the company to market perform from outperform earlier.

It also lowered its price target to $316 per share from $337 per share. 

“Longer-term we still see value in the stock, but adding at these levels ahead of increasing execution, event, and policy risk seems difficult to defend,” analyst David Vernon was quoted by CNBC. 

We’re taking a tactical pause and lowering our rating ahead of a widely expected reset in the near-term guidance framework / uncertainty around meeting high LTL freight spinoff expectations.

At the time of writing, shares of FedEx was down nearly 3% from the previous close.

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In a sharp escalation of US-China tech tensions, four leading Chinese industry associations have advised domestic companies to reconsider purchasing US chips, labeling them as “no longer safe.”

This rare, coordinated response follows Washington’s latest export curbs on Chinese semiconductor firms, further straining an already fraught relationship between the two global superpowers.

The move could ripple across major US chipmakers, including Nvidia, AMD, and Intel, raising questions about the future of their foothold in China’s lucrative market.

China’s warning against US chips

The advisory from Chinese associations comes on the heels of the US imposing its third set of export restrictions in three years.

On Monday, Washington extended its controls to 140 entities, including Naura Technology Group, a prominent chip equipment maker.

These actions are part of an ongoing strategy to curtail China’s technological advancements, citing national security concerns.

In response, Chinese associations representing industries such as telecommunications, semiconductors, and the digital economy urged local businesses to prioritize domestic chips or explore alternatives from other regions.

The Internet Society of China, through its WeChat account, encouraged firms to “proactively” adopt locally produced semiconductors and reduce reliance on US suppliers.

The warning could disrupt business for US semiconductor giants like Nvidia, AMD, and Intel, which have historically maintained a strong presence in China despite export restrictions.

The Semiconductor Industry Association (SIA), a US trade group, dismissed the claims of American chips being unsafe, stating, “Coordinated calls in China to limit procurement of US chips are unhelpful and inaccurate.”

The SIA further emphasized the importance of targeted export controls that address specific security concerns, urging both nations to de-escalate the conflict to prevent broader economic fallout.

China’s rare earth export ban

Compounding the tension, Beijing has banned the export of critical rare earth minerals used in military applications, solar cells, and fiber optics.

This move is seen as a direct retaliation against the US trade policies.

A White House National Security Council spokesperson responded, vowing to deter further “coercive actions” from China and accelerate efforts to diversify supply chains away from Chinese dominance.

The warnings echo earlier actions against US companies like Micron, which faced a cybersecurity review and eventual restrictions in China.

Similarly, Intel has been scrutinized by Chinese cybersecurity bodies for allegedly harming national security.

Such measures indicate a broader strategy by Beijing to challenge US dominance in critical technology sectors.

As both nations double down on protective measures, businesses on both sides of the Pacific face increasing uncertainty.

While China pushes for domestic innovation, US companies are likely to explore new markets to offset potential losses.

The escalating trade war could redefine the global semiconductor landscape, impacting supply chains and investment decisions worldwide.

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